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Item 3 — Quantitative and Qualitative Disclosures About Market Risk
Natural Gas Services Group, Inc. · 10-Q · Q2 FY2026 · Period ended Jun 30, 2026
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Commodity Price Risk
Commodity risk is the risk of loss arising from adverse changes in market rates and prices of commodities, such as oil and gas. Since we do not own or distribute any oil or natural gas in connection with our compressor services, we do not have any direct exposure to fluctuating oil or natural gas commodity prices. However, the demand for our compression products and services depends upon the continued demand for, and production of, oil and natural gas. Thus, declining demand and/or sustained low oil and natural gas prices over the long-term could result in a decline in the production of these natural resources, which could result in reduced demand for our compression products and services.In addition, certain of our costs of services including lubricants and other petroleum-based products are subject to commodity price volatility.
Customer Concentration Risk
For the three months ended June 30, 2026, our two largest customers accounted for approximately 64%, on a combined basis, of our recurring revenues. If either of these significant customers were to discontinue their relationship with us, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, these two customers accounted for 63% of our accounts receivable balance on a combined basis as of June 30, 2026. Thus, we are subject to credit risk due to the concentration of our accounts receivables with these two significant customers. We do not require our customers to post collateral, and the inability of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results.
Interest Rate Risk
We are exposed to market risks associated with changes in the variable interest rate of our Credit Facility. As of June 30, 2026, we had $328.0 million of variable interest rate indebtedness outstanding at a weighted average interest rate of 6.48%. Assuming a constant borrowing level under the Credit Facility and excluding any changes in other financial metrics that would impact the applicable margin applied to Credit Facility borrowings, an increase (decrease) in the interest rate of one percent would result in an increase (decrease) in interest expense of $3.3 million on an annual basis.